Stop Building Deals in a Hodgepodge: The Transaction You’re Doing Today Can Complicate the One You Want Tomorrow
A deal can make sense on its own and still leave the larger organization harder to finance, manage, or sell.
The Bottom Line
Every acquisition or financing has to fit into an organization that already has owners, obligations, and plans. Where the new assets sit and how they are financed can affect businesses and relationships well beyond the transaction itself.
Before committing to a structure, assess governance, financing, and existing agreements together. The question is bigger than whether you can close this deal. It is what the structure will allow you to do next, and whose permission you may need to do it.
A good deal can still be a poor fit
You find an operating business that complements what you already own. The price works, financing is available, and the acquisition makes commercial sense. The immediate focus is getting it closed.
But which entity will own it? How will the new financing interact with debt already in the organization? What happens if you later want to sell this business while keeping the others?
Those questions can get pushed behind the purchase price and closing date. Repeat that approach across several transactions, and the organization becomes a record of individual deals rather than a structure built to support the business.
That is how the hodgepodge develops. Each decision may have made sense at the time. Together, they can leave the next transaction dependent on untangling the last few.
Where the asset sits changes what you can do with it
Corporate transaction structure starts with a practical question: which entity should own the new asset or business, and why? That question sits at the centre of entity structure, capitalization, and governance.
An existing company may seem like the convenient home. But who must approve additional borrowing or a later sale? Would the acquisition affect financial ratios the company has promised to maintain? Could moving the business into another entity require a landlord’s consent under an existing commercial lease? The answers depend on the governing documents, financing agreements, and leases already in place.
Creating a separate entity is not automatically the answer, either. You still need to understand how it connects to the parent, who controls its decisions, and whether its financing will require support from elsewhere in the organization.
The ownership chart should reflect those choices. If you expect to refinance or sell an asset separately later, assess that possibility now, before making commitments that could tie it to the rest of the business.
Separate loans can still compete for the same collateral
A financing problem I see regularly starts with different assets sitting beneath the same parent or holding company. One lender finances one asset. Another finances a different asset. Viewed separately, both arrangements may look workable.
Viewed together, they raise a commercial financing question: who has rights to what collateral, and what happens when those rights overlap?
Having multiple lenders is not itself the problem. The problem is discovering, late in negotiations, that the security promised to one lender conflicts with what another requires.
That can mean revisiting terms, negotiating priorities between lenders, or reworking the proposed structure. Before agreeing to financing, map what each lender expects to secure and what has already been pledged. An attractive loan needs to fit the organization’s existing commitments.
Get the advisors working together while choices are still open
Start by identifying what the structure needs to accomplish for ownership, control, liability, and financing. Then test how to get there. Tax advice may change the sequence of transfers or other steps needed to put that structure in place.
That is why counsel, financial advisors, and tax advisors need to work together early on complex transactions. Counsel can assess governance, liability, and existing obligations. Financial and tax advisors can test the economics and determine how the proposed steps affect the tax outcome.
Waiting until the business terms are committed can turn that collaboration into an exercise in working around decisions already made. A lender may have priced one structure, and the seller may have agreed to another set of assumptions.
Bring the advisors together while those choices are still negotiable. They need to understand what you intend to buy or finance today, and what you may want to refinance, separate, or sell tomorrow.
Before Committing to the Structure
- Identify which entity will own the asset and who will control major decisions.
- Review existing lender covenants, lease obligations, and required consents.
- Map proposed collateral against assets and ownership interests already pledged.
- Check whether the structure could complicate a future refinancing or sale.
- Have counsel and financial and tax advisors assess the proposed structure together, while changes are still practical.
Dan’s Perspective
A transaction needs to work from the governance, financing, and third-party covenant perspectives together. A structure that solves one problem while creating another elsewhere in the organization is unfinished work.
Before adding the next deal, understand what it will require of the businesses and assets you already own.
— Dan Katz